2.2 Aggregate Demand

Cards (39)

  • Aggregate Demand

    Total household expenditure on goods and services in an economy AD = C+I+G+(X-M)
  • Animal Spirits

    Confidence or pessimism held by consumers and firms.
  • Consumer Confidence
    Expectations about the future including interest rates, incomes and jobs.
  • Consumer Durables
    Products that are not used up immediately when consumed and provide a flow of services over time eg washing machine
  • Consumer Spending/ Consumption

    Household spending on goods and services. Consumption is 60% of the UK's AD
  • Disposable Income
    Gross income less income tax and national insurance contributions plus welfare benefits. DY = Gross income - direct taxes
  • Household Income
    The financial resources available to household to spend or save
  • Original Income
    Income from jobs, private pensions, interest from savings
  • Gross Income

    Original income + cash benefits
  • Post-tax Income
    Disposable income - indirect taxes
  • Household Wealth
    The monetary value of assets –including property, shares, savings, pension fund assets
  • Income
    A flow of money to factors of production
  • Interest Rate
    The cost of borrowing or the reward for saving expressed as a percentage
  • Negative Equity

    When the value of an asset falls below the debt left to pay on that asset.
  • Pension Fund
    Employees' pension benefits are invested in stocks, bonds and other assets to boost returns and ensure there are sufficient funds to retire
  • Personal Allowance
    The amount of income you can earn before you start paying income tax.
  • Precautionary Saving

    Saving due to fears of a loss of real income or rising unemployment.
  • Saving Ratio

    The percentage of household disposable income that is saved rather than spent
  • Unsecured Credit

    Credit not secured by another asset ie. credit cards
  • Wealth
    Assets that generate income eg. savings held in commercial bank deposits, ownership of shares issued by PLCs and equity stakes in LTDs and real estate.
  • Wealth Effect

    The supposed link between changes in wealth and household spending.
  • Access to Credit
    The willingness and ability of financial institutions to lend funds to producers and consumers.
  • Business Confidence
    Expectations about the future of the economy which influences firms' spending on capital
  • Gross Investment
    Total investment = new investment + replacement investment.
  • Investment
    Spending on capital goods
  • Investment Income
    Interest, profits and dividends from assets owned and located overseas.
  • Keynesian Economics

    The belief that the state can directly stimulate demand in a stagnating economy by funding public works, housing, schools, hospitals etc.
  • Net Investment
    Total investment - replacement investment.
  • Replacement Investment

    The purchase of capital goods by firms to replace existing, worn-out capital. It does not add to the total capital stock of an economy.
  • Fiscal Policy

    Government policies regarding tax can be loose (lower taxes and increased spending) or tight (higher taxes and decreased spending)
  • Government Borrowing

    The amount the government must borrow each year to finance their spending.
  • Government Debt
    The total stock of unpaid debt issued by a government borrowed by issuing bonds or other securities.
  • Government Spending
    Spending by government on education, health care and defence & other public services.
  • Trade Cycle

    Fluctuations in economic activities especially in employment, output and income, prices, profits etc
  • Automatic Stabilisers

    Automatic fiscal changes as the economy moves through the business cycle
  • Discretionary Fiscal Policy

    The government actively making a change to spending or taxes to achieve macroeconomic objectives
  • Determinants of Investment
    Interest rates, business confidence, profitability, productivity of capital, government policies, economic growth (Accelerator Effect)
  • Determinants of Consumption
    -Income
    -Inflation
    -Interest rates
    -Wealth effect
    -Consumer confidence
    -Demographics
  • Life-cycle Hypothesis
    At different stages of a person's lifetime their consumption changes
    A) Savings
    B) Income Curve